What You Need to Know
- Family offices benefit from a lack of defined investing timelines and the absence of outside interference.
- Their outsized exposure to alternative investments reflects their higher return hurdles, patient capital pools and professional diligence capabilities.
- Amid the possibility of a prolonged low-rate environment and higher inflation, many family offices are reaching for higher returns and higher risk,
Family offices are agile and largely unconstrained investors, with a fair degree of flexibility in managing and preserving their wealth. In a new survey of family offices around the world, Goldman Sachs identified how they take advantage of these inherent characteristics.
The survey found that family offices tend to be more aggressive in seeking superior returns, but are also more oriented toward the long term, given their lack of defined investing timelines and the absence of outside interference.
The study involved some 150 family offices, of which 54% were in the Americas, 23% in Asia and 23% in Europe, the Middle East and Africa. Eighty percent of participants disclosed their total asset base:
- $5 billion or more: 22%.
- $1 billion to $4.9 billion: 44%.
- $500 million to $999 million: 20%.
- $250 million to $499 million: 7%.
- Less than $250 million: 6%.
The study found that family offices had an average 31% allocation to public equities. GS said this bias toward public market equities is largely consistent with that of ultra-high-net-worth individuals, and may be partly attributable to the concentration of wealth in companies that have since gone public.
What’s remarkable in the survey results is family offices’ outsize exposure to alternative investments, on average a 45% combined allocation to private equity, real estate, private credit and hedge funds.
GS said this reflects their higher return hurdles, patient capital pools and professional diligence capabilities.
The average global respondent’s allocation to cash and fixed income stands at about 19% of the portfolio. GS said maintaining an allocation to cash and cash equivalents may allow family offices the flexibility to act quickly as opportunities arise and to meet capital calls for their private equity investments.
About two-thirds of respondents are thinking about a prolonged low-rate environment, and a similar number are monitoring inflation, according to the survey. In both cases, many family offices are reaching for higher returns and higher risk; for example, 72% said they would increase their allocation to equities.
Forty-four percent of family offices that are focused on low rates said they are considering investments in operating businesses, and 55% of those who are thinking about a potential rise in inflation are investing in hard assets, such as real estate.
Nearly all survey participants reported that they have at least some exposure to private equity. Many family offices invest in private equity through both funds and direct transactions, but a greater percentage of respondents in Europe, the Middle East, Africa (EMEA) and Asia than those in the Americas said they invest through managers.